For the first time since the administration of President Ronald Reagan, an exclusion order issued by the U.S. International Trade Commission (ITC) has been disapproved by the president on policy grounds. On August 3, 2013, U.S. Trade Representative (USTR) Michael Froman, acting under the authority of President Obama, sent a letter to the ITC noting his disapproval of the ITC’s determination to issue an exclusion order in “Certain Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Table Computers, Investigation No. 337-TA-794.” The letter explained that the USTR’s disapproval was based on various policy considerations and particularly emphasized the harms associated with “patent hold-up” that are caused when exclusionary relief is sought for standards essential patents (SEPs) that are subject to voluntary commitments to be licensed on fair, reasonable and non-discriminatory (FRAND) terms.

In the 794 investigation, the complainant, Samsung Electronics, asserted two patents previously declared to be “standards essential” to the Universal Mobile Telecommunications System promulgated by the European Telecommunications Standards Institute (ETSI) and therefore subject to FRAND licensing commitment. After licensing negotiations between Samsung and the respondent, Apple, broke down, Samsung filed a complaint at the ITC requesting a limited exclusion order against certain of Apple’s mobile communication products. In its final determination, the ITC found one of the two patents asserted by Samsung to be both valid and infringed, ruling that the proper relief was a limited exclusion and cease-and-desist order.

On review of the ID by the full ITC, the ITC rejected Apple’s theory that the ITC “cannot address infringement of standard-essential patents other than in the exceptional scenarios such as where a potential licensee has refused to pay a royalty after a U.S. court has determined that royalty to be FRAND, or where no U.S. court has jurisdiction over the potential licensee in order to set a FRAND rate,” ruling that the remedies provided under §337 could be imposed in addition to any damages or injunctions available from a district court. The ITC also rejected Apple’s position that the fact that a patent has been declared standard-essential should be considered as part of the public interest analysis.

In accordance with 19 U.S.C. §1337(j), the president has the authority to disapprove “for policy reasons” any ITC determination finding a violation of Section 337. The president may disapprove an ITC order on policy grounds, approve an order, or take no action and allow the order to come into force upon the expiration of a 60-day review period following the issuance of the order by the ITC. Through an executive order in 2005, President Bush delegated this authority to the USTR.

In his August 3 letter, the USTR took into account the following considerations as being relevant to the policy review of the impact of the ITC’s determination to issue an exclusion order: public health and welfare; competitive conditions in the U.S. economy; production of competitive articles in the United States; U.S. consumers; and U.S. foreign relations, economic and political. In analyzing these considerations, the USTR relied heavily upon the “Policy Statement on Remedies for Standard-Essential Patents Subject to Voluntary RAND Commitments” issued jointly by the U.S. Department of Justice (DOJ) and the U.S. Patent and Trademark Office (PTO) on January 8, 2013. As noted in the DOJ/PTO Policy Statement, the Obama administration expressed “substantial concerns” about the undue leverage that results when the holder of an SEP seeks to exclude an implementer of a technology standard from a market in order to leverage a higher price for use of the patent than would have been possible before the standard was set, i.e., when alternative technologies could have been chosen.

The USTR further noted that “exclusionary relief from the Commission based on FRAND-encumbered SEPs should be available based only on the relevant factors described in the Policy Statement.” As explained by the USTR, “an exclusion order may still be an appropriate remedy in some circumstances, such as where the putative licensee is unable or refuses to take a FRAND license and is acting outside the scope of the patent holder’s commitment to license on FRAND terms.” The Policy Statement noted, as examples, the situation where “a putative licensee refuses to pay what has been determined to be a FRAND royalty, or refuses to engage in a negotiation to determine F/RAND terms,” which may also include a “constructive refusal to negotiate, such as by insisting on terms clearly outside the bounds of what could reasonably be considered to be F/RAND terms in an attempt to evade the putative licensee’s obligation to fairly compensate the patent holder.” Additionally, the Policy Statement noted that “[a]n exclusion order also could be appropriate if a putative licensee is not subject to the jurisdiction of a court that could award damages.”

Patents / Indefiniteness

Patent Claims Are Indefinite Where Claimed “Molecular Weight” Subject to Different Calculations
Teva Pharmaceuticals USA v. Sandoz Inc.
by Kristin Connarn

Addressing the issues of indefiniteness and enablement of pharmaceutical products, the U.S. Court of Appeals for the Federal Circuit upheld judgments of infringement and no validity with respect to one group of claims and reversed judgment of no invalidity with respect to another group of claims. Teva Pharmaceuticals USA v. Sandoz Inc., Case Nos. 12-1567, -1568, -1569, -1570 (Fed. Cir., July 26, 2013) (Moore, J.).

Teva sued several companies for patent infringement after they submitted Abbreviated New Drug Applications (ANDAs) to market generic versions of Copaxone®. At least seven of the eight Orange Book listed patents were asserted.

The active ingredient is copolymer-1, or glatiramer acetate, which is a polypeptide product that consists of four different amino acids (alanine, glutamic acid, lysine, and tyrosine). Copolymer-1, however, is a mixture of individual polymer molecules with different constituent ratios and different molecular weights (often expressed as “average molecular weight”).

The Federal Circuit reaffirmed a principle of patent law by holding that because the claim term “molecular weight” can be calculated at least three different ways—peak average molecular weight (Mp), number average molecular weight (Mn), and weight average molecular weight (Mw)—resulting in three different values, the asserted claims were invalid for indefiniteness. This is because it is not possible to determine whether potential infringing activity will fall within the scope of the claims.

However, the Court also held that at least some of the claims that included this term, but which described in the claim how to calculate “molecular weight,” were not indefinite (the Group II claims). In this case, the molecular weight was not expressed as a statistical measure, but rather the percentage of copolymer-1 molecules that fall within a defined range. As a result, the measurement was not dependent on the type of calculation performed because it required a determination of the actual values.

In addition, the Court determined that there was insufficient evidence to overturn the lower court’s determinations that the asserted claims were enabled, not obvious, and infringed. Thus Teva’s injunction of the various ANDA filers was maintained. However, because one of the seven patents expires after all of the others (in 2015, instead of 2014), the Federal Circuit remanded the case to the lower court to determine the impact on the length of the injunction.

Patents / Written Description

A Generic Disclosure Does Not Support Claims to Individual Species
Novozymes A/S v. DuPont Nutrition Biosciences APS
by K. Nicole Clouse, Ph.D.

Addressing the issue of written description as it relates to a genus and related species, the U.S. Court of Appeals for the Federal Circuit upheld a district court’s post-trial grant of a motion for judgment as a matter of law that claims were invalid for lack of written description, finding that a description of a genus does not provide sufficient written description of claims to particular undisclosed species. Novozymes A/S v. DuPont Nutrition Biosciences APS, Case No. 12-1433 (Fed. Cir., July 22, 2013) (Schall, J.) (Rader, J., dissenting).

Plaintiff Novozymes filed a patent application in 2000 describing improved variants of alpha-amylase proteins used in commercial-scale ethanol production. The disclosure identified 33 specific amino acid positions (out of more than 500 possible positions) that can be changed (“mutated”) to yield protein variants that are more thermostable (i.e., heat-resistant). The disclosure further describes that each target position can be mutated in one of about 40 different ways and included “pages” of specific, exemplary mutations. The examples presented data for a few such variant proteins that displayed improved thermostability, but post-filing date experiments revealed that some of the 33 positions did not yield any variants with improved thermostability (including a tryptophan mutation at position 239, denoted “S293W”).

After the Novozymes application was filed (in 2000), DuPont developed an alpha-amylase variant protein with a glutamine mutation at position 239 (denoted “S239Q”). In response, Novozymes filed a continuation application and claimed alpha-amylase variant proteins containing a mutation at position 239 and having improved thermostability. After trial Novozymes sued DuPont on the resulting patent, the district court judge granted DuPont’s motion for judgment as a matter of law (JMOL) and overturned the jury’s special verdict that the Novozymes patent was not invalid for lack of written description. DuPont appealed.

The Federal Circuit upheld the district court’s determination of invalidity for lack of written description, centering its analysis on the fact that the patent disclosure did not explicitly describe any specific variants falling within the scope of the claims. The Court noted that that, “[w]hile the 2000 application provides formal textual support for each individual limitation recited in the claims of the … patent, it nowhere describes the actual functioning, thermostable alpha-amylase variants that those limitations together define.” The Court further found that “one searches the 2000 application in vain for the disclosure of even a single species that falls within the claims or for any ‘blaze marks’ that would lead an ordinarily skilled investigator toward such a species among a slew of competing possibilities.” Indeed, although the specification described a variant with a mutation at position 239 (i.e., the S239W variant), this variant did not display the improved thermostability as required by the claims. The Court concluded that since a person of ordinary skill in the art “could not know which, if any, individual substitutions . . . would yield increased thermostability without actually making and testing the variants,” Novozymes was not in possession of such variants.

The Federal Circuit cautioned against conflating the distinct requirements of written description and enablement, noting that the relevant question is not whether a person of ordinary skill in the art would have been enabled to identify specific variants within the scope of the claims, but instead, whether the specification actually discloses those variants to a person of skill in the art. To demonstrate actual possession of the claimed variants, “Novozymes [needed] to confirm its predictions by actually making and testing individual variants or at least identifying subclasses of variants that could be expected to possess the claimed properties.”

In dissent, Chief Judge Rader argued that substantial evidence (e.g., expert testimony, visual aids, and publications over an eight-day trial, along with use of a special verdict form) supported the jury’s verdict and that it should be reinstated. Chief Judge Rader noted that the jury heard expert testimony that “finding the position where you can make a beneficial mutation is, in fact, the inventive step” and that, once those positions are known, only a week’s worth of well-known, routine experimentation would be required to make and test the substitutions. He further noted that “[t]his court might also have credited the patentee with reducing the original 500 total amino acid positions down to a mere thirty-three.”

Patents / Written Description

A Negative Claim Limitation Must Be Supported by the Specification
In re Bimeda Research & Development Ltd.
by Cynthia Chen, Ph.D.

Addressing whether a negative claim limitation failed to meet the written description requirement, the U.S. Court of Appeals for the Federal Circuit affirmed a decision from the U.S. Patent and Trademark Office Patent Trial and Appeal Board (Board), finding that a description in a specification to exclude a genus in general is insufficient to support a negative claim limitation that excludes a specific species. In re Bimeda Research & Development Ltd., Case No. 12-1420 (Fed. Cir., July 25, 2013) (Clevenger, J.) (Rader, C.J., concurring).

At issue in this case was Bimeda’s ’400 patent, directed to methods of preventing the onset of bovine mastitis by employing a physical barrier within the teat canal to block mastitis-causing organisms. According to the patent, the physical barrier provided a “non-antibiotic approach” to prevent infections.

After the patent was issued, the USPTO ordered ex parte reexamination in view of prior art that taught the use of a physical barrier in conjunction with certain anti-infective agents, such as antibiotics and acriflavine (which is an antiseptic agent). Bimeda amended the claim to recite the use of “an acriflavine-free” seal formulation to form a physical barrier. The amended claim was rejected by the examiner for lacking written description, because the term “acriflavine” was not mentioned anywhere in the specification. The Board affirmed the examiner’s rejection, holding that the specification only disclosed the exclusion of a broad genus (anti-infectives), but failed to demonstrate “possession” of a formulation that excluded a particular species (acriflavine). There was no guidance (or “blaze marks”) in the specification to guide a skilled artisan towards excluding that particular species. Accordingly, the Board held that the disclosure of the patent failed to convey the full scope of what was affirmatively claimed—a formulation that excluded acriflavine but could include other anti-infective agents. Bimeda appealed.

Bimeda argued to the Federal Circuit that the patent disclosure evidenced “a tacit indifference to the presence or absence of specific anti-infectives,” and contended that the disclosure therefore supported a claim that excluded one particular anti-infective (but permitted the use of others, such as antibiotics). The Federal Circuit rejected the argument, noting that the “summary of the invention” of the patent described the invention’s “non-antibiotic approach” for preventing mastitis and explained how this approach achieved the benefit of “meeting consumer preferences for reducing the levels of antibiotics used in food production.” The remainder of the patent similarly distinguished the invention due to its ability to prevent mastitis without using antibiotics. Accordingly, the Court explained that the disclosure was inconsistent with a claim that excluded acriflavine, but could include antibiotics and thus failed to convey “possession” of the full scope of the claim.

In his concurrence, Chief Judge Rader agreed that the specification did not sufficiently disclose a formulation which excluded a specific species of the anti-infective genus, but permitted the presence of other species. However, Rader noted the dilemma of meeting the written description requirement under on the traditional “possession” analysis, because the “possession” requirement placed the patentee in a Catch-22: To satisfy the written description, “the patentee must show possession of something it specifically claims it does not possess.”

Practice Note: Negative claim limitations can be adequately supported when the ? ???e??Q?t?!??scribes a reason to exclude the relevant limitation. Such written description support need not rise to the level of disclaimer. In fact, it is possible for the patentee to support both the inclusion and exclusion of the same material. See, e.g., Santarus and the University of Missouri v. Par Pharma. (“The claim limitation that the Phillips formulations contain no sucralfate is adequately supported by statements in the specification expressly listing the disadvantages of using sucralfate.”) The Federal Circuit in this case found that the main problem of Bimeda’s patent is that a formulation that includes antibiotics but excludes acriflavine is contrary to the “non-antibiotic approach” disclosed in the patent.

Patents / Obviousness

Objective Indicia of Non-Obviousness Must Be Considered Before Concluding Patent Claims Are Obvious
Plantronics, Inc. v. Aliph, Inc.
by Patrick Lai

Addressing the objective indicia of non-obviousness in the context of summary judgment, the U.S. Court of Appeals for the Federal Circuit overturned a district court’s judgment of obviousness, finding the district court did not properly consider objective indicia of non-obviousness, including copying and commercial success. Plantronics, Inc. v. Aliph, Inc., Case Nos. 12-1355 (Fed. Cir., July 31, 2013) (Wallach, J.).

Plantronics, Inc. (Plantronics) filed suit alleging that Aliph and Aliphcom (collectively, Aliph) products infringe Plantronics patent directed to headphones or ear buds that are inserted into a user’s ear without projections hooking onto the user’s ear.

Aliph requested ex parte reexamination of Plantronics’ asserted patent by the U.S. Patent and Trademark Office (USPTO), asserting that the asserted claims were invalid as anticipated and obvious in view of four prior art references. The USPTO granted reexamination, and the district court litigation was stayed. After the USPTO confirmed the patentability of the challenged claims the district court issued its claim construction order.

The district court granted summary judgment for Aliph, holding the asserted claims were invalid on the basis that common sense would have motivated a person of ordinary skill in the art to combine prior art references to achieve the patented invention. However, the district court did not cite any expert testimony indicating that there was a motivation to combine. Moreover, the court did not consider any objective indicia of non-obviousness before coming to their conclusion, but determined that common sense would motivate a skilled artisan to combine the relevant references’ teachings. Plantronics appealed.

In reversing the summary judgment, the Federal Circuit explained that the trial courts must weigh all evidence, including objective considerations, and must find support in the record before issuing an obviousness determination. Objective evidence, such as a previous inventor’s failed attempt to combine the prior art, or evidence that Aliph profited by copying the patent, had been considered by the district court only as a type of supplemental review after it already had found the claimed invention to be obvious. As the Federal Circuit explained, failure to give proper consideration to such evidence can be fatal because “common sense” may not be so apparent in view of objective evidence of non-obviousness (e.g., commercial success and copying), particularly when all reasonable inferences are drawn in favor of the patentee.

The Federal Circuit noted that its jurisprudence has consistently stood for the proposition that all evidence pertaining to the objective indicia of non-obviousness must be considered before reaching an obviousness conclusion. The significance of the fourth Graham factor cannot be overlooked or be relegated to “secondary status.” Accordingly, the Court found that the commercial success of Aliph’s product and the failed of attempts to combine the prior art elements before the subject patent did so in the claimed invention provided genuine issues of material fact as to whether it would be mere “common sense” to combine the elements in the prior art to arrive at the claimed invention.

Patents / Vitiation Doctrine

Has the Doctrine of Claim Vitiation Itself Been Vitiated?
The Charles Machine Works, Inc. v. Vermeer Manufacturing Co.
by Stephen M. Yu

Addressing the doctrine of claim differentiation in the context of summary judgment, the U.S. Court of Appeals for the Federal Circuit reversed summary judgment of non-infringement, concluding that the doctrine of claim vitiation was not a bar against plaintiff’s application of the doctrine of equivalence even when elements are read out of the claims. The Charles Machine Works, Inc. v. Vermeer Manufacturing Co., Case No. 12-1578 (Fed Cir., July 26, 2013) (Moore, J.).

Charles Machine Works (CMW) asserted a patent relating to boring underground holes in the horizontal direction using a two-pipe drill made up of an inner pipe for rotating a drill bit and an outer pipe for steering the drill against Vermeer Manufacturing (Vermeer). The patent claims a structure, the “deflection shoe,” which operates as a steering mechanism by deflecting the drill away from a straight drilling path. A question posed at the district court level was whether the claimed “deflection shoe,” which was expressly claimed as “mounted on a first side of the body,” must be mounted on an outer pipe.

In its motion for summary judgment of no infringement, Vermeer argued, inter alia, that a finding of equivalence between the claimed “mounted deflection shoe” and the accused component, which was not mounted, would read the “deflection shoe” and “mounted on” limitations out of the claims. Thus, such a finding is barred by the doctrine of claim vitiation. The district court discounted CMW’s expert declaration and granted Vermeer’s motion for summary judgment of no infringement based on the apparent express claim requirement that the “deflection shoe,” or equivalent thereof, must be “mounted on” the drilling apparatus. CMW appealed.

The Federal Circuit concluded that summary judgment was not appropriate as CMW’s expert declaration, which supported equivalency between the accused component and the claimed “deflection shoe,” had established a genuine dispute with regard to equivalence. The Court explained that the expert testimony established a case for equivalence between the claimed and accused structures using the “function-way-result” test, notwithstanding that the expert’s broad application of the equivalency test essentially read the “mounted on” limitation out of the claim. The Federal Circuit panel explained that the appropriate question for the district court, on summary judgment, was whether a reasonable jury could find equivalence based on the record.

Practice Note: The panel ruling in this case may be compared with other Federal Circuit decisions regarding the conventional understanding that equivalence should be determined on an element-by-element analysis, e.g., Asyst Technologies v. Emtrak, (“This case falls within both that doctrine and its corollary, the “specific exclusion” principle, since the term “mounted” can fairly be said to specifically exclude objects that are “unmounted.”); Brilliant Instruments v. GuideTech, (“[Equivalence] will be more difficult when the accused structure has an element that is the opposite of the claimed element.”).

Patents / Obviousness / New Ground of Rejection

Detailed Explanation Not the Same as a New Ground for Rejection
In Re Adler
by Sungyong "David" In

Addressing patentability of claims of an application, the U.S. Court of Appeals for the Federal Circuit upheld a decision by the U.S. Patent and Trademark Office (PTO) Board of Patent Appeals and Interferences (Board), finding that the Board did not err in rejecting all of the pending claims as obvious and did not rely on new grounds for rejection. In Re Adler, Case No. 12-1610 (Fed. Cir., July 18, 2013) (Wallach, J.).

This case arose from an appeal from the decision of the Board affirming the examiner's final rejection of all pending claims of an application as obvious over several prior art references including Meron and Hirata. The application was directed to a system including a swallowable capsule having an in-vivo imaging device for detecting blood within a body lumen. The Meron reference disclosed a capsule that moves through the gastrointestinal tract in order to generate a map of the tract, but does not specifically disclose a method of detecting the presence of blood inside the tract. The Hirata reference disclosed use of image processing with a video endoscope relating to a study of factors of esophageal variceal rupture. After the examiner finally rejected the pending claims over a combination of Meron and Hirata, asserting that it would have been obvious to one skilled in the art to incorporate Hirata's teaching of a processor for colorimetric analysis of video endoscopic data in order to determine the presence of blood in Meron’s device. Adler appealed to the Board the examiner’s rejection.

The Board affirmed the examiner’s rejection, concluding the claimed invention would have been obvious “because a skilled artisan would have been motivated to combine Hirata—which discloses methods for comparison of the red color content of two reference values of tissue—with Meron, based on Meron’s suggestion that the in vivo camera could include a means for detecting the presence of blood.” Adler then appealed to the Federal Circuit.

On appeal, the Federal Circuit determined that the application claims are “a predictable variation of the combination of Hirata and Meron,” agreeing with the Board’s rationale that one skilled in the art “would be motivated to build on Meron’s teachings concerning received images from a swallowable device that could be compared to the reference values disclosed in Hirata. Adler argued that an applicant confronting a Board decision such as the one in issue here should be entitled to reopen prosecution by the examiner or to request a rehearing because the Board relied on a new ground of rejection. Specifically, Adler contended that the Board’s reliance on Hirata’s image processing and colorimetric analysis changed the thrust of the examiner’s rejection based on Hirata’s classification of red color signs. The Federal Circuit was not persuaded. Rather, the Federal Circuit explained that the Board’s more detailed explanation (as compared to the examiner’s) does not amount to a new ground of rejection. As viewed by the Court, the Board did not make new factual findings to which the applicants did not have an opportunity to respond.

Patents / Licensing

Royalty Payments for Hybrid Agreements Covering Inseparable Patent and Non-Patent Rights End When the Patent Expires
Kimble v. Marvel Enterprises Inc.
by Jacqueline Mahoney

Addressing a “hybrid” license agreement that extended beyond the life of a patent, the U.S. Court of Appeals for the Ninth Circuit affirmed summary judgment in favor of the licensee, finding that the agreement encompassing inseparable patent and non-patent rights is unenforceable beyond the expiration date of the underlying patent absent a discounted rate or a clear indication that the royalty is in no way subject to patent leverage. Kimble v. Marvel Enterprises Inc., Case No. 11-15605 (9th Cir., July 16, 2013) (Callahan J.).

In 1990, Kimble invented a toy that mimicked Spider-Man’s web-shooting abilities using foam string that is shot from a can mounted on the user’s wrist. Kimble obtained a patent directed to the toy which expired in 2010. Kimble and Marvel entered into a settlement agreement in 2001 to end a patent infringement and breach of contract suit brought by Kimble whereby Marvel agreed to pay a 3 percent royalty on “net product sale” without an expiration date. The agreement stated the royalty was for product sales that would infringe the patent as well as sales of Marvel’s “Web Blaster” product, without differentiating the product from the patent. After further disputes between the parties regarding payment of royalties, Kimble again sued Marvel for breach of contract, and Marvel countersued claiming it was not required to make payments after the patent expired. The district court found the settlement agreement was a “hybrid” for the patent rights and the rights to the toy because there was no distinction between the royalties for the two categories and granted summary judgment for Marvel. Kimble appealed.

In upholding the district court’s decision, the 9th Circuit, following the Supreme Court’s decision in Brulotte v. Thys Co., held that a patent licensing agreement that requires a licensee to make royalty payments beyond the expiration date of the underlying patent is unenforceable as an improper attempt to extend the patent monopoly. The court was critical of the Brulotte rule as counterintuitive and stated that its rationale is arguably unconvincing. The court further declined to require agreements to include a discounted rate to avoid the Brulotte rule. The 9th Circuit found that where an agreement that extends royalty rates beyond the patent expiration and the agreement does not include a discount rate after expiration, there must be some other clear indication that the royalty was in no way subject to patent leverage in order to be enforceable.

Patent / License

Contract Has Latent Ambiguity if Objective Evidence Supporting Reasonable Alternative Meaning Exists
Mylan Inc. v. SmithKline Beecham Corp.
by Sarika Singh, Ph.D.

Addressing the issue of whether the terms of a licensing agreement were ambiguous, the U.S. Court of Appeals for the Third Circuit reversed summary judgment against plaintiff on breach of contract and remanded, finding the lower court had erred in refusing to consider objective extrinsic evidence supporting a reasonable alternative meaning of the disputed terms. Mylan Inc. v. SmithKline Beecham Corp., Case No. 12-1539 (3d Cir., July 22, 2013) (Ambro, J.).

SmithKline Beecham (GSK) holds the original FDA authorization for paroxetine hydrochloride controlled release tablets (paroxetine). Mylan filed an application to sell generic paroxetine, challenging GSK’s patent covering the product; GSK sued for patent infringement under the provisions of the Hatch-Waxman Act. The parties settled soon thereafter. The settlement agreement, dated August 2007, provided Mylan an exclusive license to market and sell generic paroxetine for the remaining term of the patent, which was set to expire in July 2016, including rights to sell Mylan’s generic product and any authorized generic (AG) paroxetine manufactured by GSK. Mylan’s rights were exclusive even as to GSK. However, following concerns raised by the Federal Trade Commission as to the length and absoluteness of Mylan’s exclusive right, the agreement was amended to allow GSK to provide non-exclusive licenses to other applicants for generic paroxetine CR (controlled release) as part of settlement of subsequent patent litigation, as well as to allow GSK and affiliates to market and sell AG paroxetine two years after Mylan’s launch of generic paroxetine (the amendment was termed the AG clause). In 2010, GSK entered into an agreement with a third party, Apotex, as part of an unrelated antitrust litigation, allowing Apotex to earn revenues from sale of certain GSK-supplied products, including sale of AG paroxetine two years after Mylan’s launch. GSK and Apotex subsequently entered into an exclusive supply and distribution agreement for AG paroxetine, and Apotex began sales activities for AG paroxetine.

Mylan sued GSK for breach of the license agreement, taking the position that the AG clause allowed only GSK to market and sell AG paroxetine to downstream customers, such as wholesalers, retailers, and pharmacy chains. According to Mylan, allowing an intermediary generic drug company such as Apotex to sell AG paroxetine in competition with Mylan was inconsistent with Mylan’s position during the negotiation of the license agreement. The district court granted summary judgment in favor of GSK ruling that the AG clause was clear and unambiguous and permitted GSK to market and sell AG paroxetine to whomever it wished, including Apotex, after Mylan’s two-year period of generic exclusivity. The court refused to consider any evidence of the intent of the parties, or evidence of industry custom and usage of the term “marketing and selling” offered by Mylan, on the ground that “such evidence cannot be used ‘to create an ambiguity where none exists’ in order to preclude summary judgment.” Mylan appealed.

The 3d Circuit vacated the summary judgment on the breach of contract claim, finding that for purposes of summary judgment, the lower court should have considered the alternative meaning suggested by Mylan, and the nature of the objective evidence provided in support, to determine if the extrinsic evidence demonstrated the existence of a latent ambiguity, especially when Mylan’s alternative reading was “both reasonable and supported by objective evidence of the parties’ intentions.” The Court found that the district court was not free to reject extrinsic evidence on the ground that it found the agreement on its face free from ambiguity, where, as here the applicable law (New Jersey) requires otherwise.

Right of Publicity / First Amendment

Use of Athlete’s Likeness in Video Game Not Protected by First Amendment
In re NCAA Student-Athlete Name & Likeness Licensing Litigation
by Nitin Gambhir and Elisabeth (Bess) Morgan

The U.S. Court of Appeals for the Ninth Circuit Court affirmed that the First Amendment does not protect a video game developer’s unauthorized use of an athlete’s likeness in a college football video game, since recreating the athlete in the setting in which he acquired notoriety is not sufficiently transformative. In re NCAA Student-Athlete Name & Likeness Licensing Litigation, Case No. 10-15387 (9th Cir., July 31, 2013) (Bybee, J.) (Thomas, J., dissenting).

Samuel Keller, former quarterback for Arizona State University and University of Nebraska, filed a class action suit against Electronic Arts Inc. (EA) alleging that EA violated Keller’s right of publicity under California Civil Code § 3344 and California common law by including his likeness in NCAA Football video games without consent. The games featured an avatar with characteristics resembling Keller such as jersey number, height, weight, skin tone, hair color, hair style, handedness, home state, play style, visor preference, facial features and school year.

The district court denied EA’s motion to strike Keller’s complaint under California’s anti-SLAPP statute (Civil Procedure Code § 425.16), which is designed, in part, to discourage suits that seek to deter a person’s freedom of speech, “unless the court determines that the plaintiff has established that there is a probability the plaintiff will prevail on the merits.” EA appealed.

The issue before the 9th Circuit was whether Keller established a reasonable probability of success on the merits, which required the court to analyze EA’s defenses under the First Amendment. First, the 9th Circuit rejected EA’s argument that the NCAA Football video games were sufficiently transformative under the standard adopted by the California Supreme Court in Comedy III Productions v. Gary Saderup, namely, “whether the work in question adds significant creative elements so as to be transformed into something more than a mere celebrity likeness or imitation.” The circuit court analogized EA’s use of Keller’s likeness to the facts in the 2011 case No Doubt v. Activision Publishing, which involved unauthorized uses of the musical group No Doubt’s likenesses in the video game Band Hero. In that case, the California Court of Appeals held that No Doubt’s right of publicity prevailed over Activision’s First Amendment defense because the video game characters were “literal recreations of the band members” engaged in “the same activity by which the band achieved and maintains its fame.”

That the video game itself contained other creative elements did not affect the court’s finding that the depiction of No Doubt was not transformative. Following this reasoning, the 9th Circuit likewise found that Keller’s virtual avatar depicted his exact physical attributes and were used within the environment in which Keller achieved renown—college football. For this reason, EA’s use of Keller’s likeness was not sufficiently transformative to support a First Amendment defense under the Comedy III standard.

The 9th Circuit also rejected EA’s First Amendment defense under the U.S. Court of Appeals for the Second Circuit’s Rogers test, which is used to evaluate false endorsement claims under the Lanham Act, because the test is designed to protect against consumer confusion as opposed to protecting the economic value of one’s persona under right of publicity. Lastly, the 9th Circuit rejected EA’s First Amendment defenses under California state law that protect publishing and reporting matters of public interest, holding that the NCAA Football games were not “reporting” on Keller’s career, especially when Keller’s name was not used in the games.

In dissent, Circuit Judge Thomas applied the Comedy III test to conclude that, on balance, the creative and transformative elements of the NCAA Football games predominated over the commercial use of Keller’s likeness, thus warranting a finding that EA’s use of Keller’s likeness was protected under the First Amendment.

Lanham Act / First Amendment

Touchdown for Video Game Producer Over Football Players False Endorsement Claim
Brown v. Elecronic Arts, Inc.
by Douglas Espenschied

Revisiting the issue of how trademark and similar rights under the Lanham Act are balanced against First Amendment rights, the U.S. Court of Appeals for the Ninth Circuit confirmed that the Rogers test remains the appropriate framework for analyzing this issue, and affirmed the grant of a motion to dismiss for failure to state a claim. Brown v. Elec. Arts, Inc., Case No. 09-56675 (9th Cir., July 31, 2013) (Bybee, J.).

Jim Brown was a star football player for the Cleveland Browns and was inducted into the National Football League Hall of Fame after his retirement. Electronic Arts (EA) produces the Madden NFL series of video games. Although Brown’s name does not appear, his likeness can be recognized in some Madden NFL games. Brown sued EA for false endorsement under §43(a) of the Lanham Act. The district court applied the Rogers test in granting EA’s motion to dismiss. Brown appealed.

Brown urged consideration of the “likelihood of confusion” test and the “alternative means” test in addition to the Rogers test. The 9th Circuit declined to apply those tests, noting that it had previously rejected those tests because each fails to account for the full weight of the public’s interest in free expression when expressive works are involved.

The 9th Circuit previously adopted the Rogers test created by the U.S. Court of Appeals for the Second Circuit. Under the first of two prongs of the Rogers test, § 43(a) is not applied to expressive works “unless the [use of the trademark or other identifying material] has no artistic relevance to the underlying work whatsoever.” The second prong applies if the use of the trademark or other identifying material has some artistic relevance, and does not apply § 43(a) to expressive works “unless the [use of the trademark or other identifying material] explicitly misleads as to the source or the content of the work.”

The “‘level of [artistic] relevance [of the trademark or other identifying material to the work] merely must be above zero’ for the trademark or other identifying material to be deemed artistically relevant.” The 9th Circuit determined that Brown’s likeness had at least some artistic relevance because realism was central to EA’s expressive goal, and inclusion of Brown’s likeness was important to realistic recreation of one of the teams in Madden NFL. Thus, the 9th Circuit concluded that the first prong of the Rogers test was inapplicable to Brown’s claim.

Under the second prong, the Ninth Circuit found that Brown failed to allege any facts to show that EA explicitly mislead consumers that Brown endorsed Madden NFL.

Because Brown’s likeness is artistically relevant and the complaint included no allegation that EA explicitly mislead consumers, the district court properly granted EA’s motion to dismiss.

Practice Note: The Rogers test has not been adopted by all circuit courts. Other tests, such as the U.S. Court of Appeals for the Third Circuit’s “predominant use” test may strike a balance more in favor of Lanham Act rights. Thus, venue may affect the outcome of some Lanham Act claims. Also, claims under state law may succeed where claims under the Lanham Act fail.

Trademarks / Initial-Interest Confusion

No Initial-Interest Confusion, No Lanham Act Violation
1-800 Contacts, Inc. v. Lens.com
by Teri H.P. Nguyen

Addressing the issue of whether an advertiser’s use of competitive keywords that resembled a competitor’s service mark violates the Lanham Act, the U.S. Court of Appeals for the Tenth Circuit ruled that, absent evidence of initial-interest confusion, there was no direct infringement under the Act. 1-800 Contacts, Inc. v. Lens.com, Case No. 11-4114 (10th Cir., July 16, 2013) (Hartz, J.).

The plaintiff, 1-800 Contacts, filed a complaint alleging that Lens.com had purchased sponsored ads from Google for AdWords keywords that resembled the plaintiff’s service mark, “1800Contacts.” The plaintiff later added claims for secondary liability, as well as for vicarious and contributory infringement, alleging that Lens.com’s affiliates had infringed on the mark by bidding on and using the mark.

The district court granted summary judgment to Lens.com on all claims, concluding there was no likelihood of initial-interest confusion (and therefore no direct infringement), and insufficient evidence to establish liability for any misconduct of affiliates (and therefore no secondary liability). The plaintiff appealed.

On appeal, the 10th Circuit affirmed on direct and vicarious liability, but reversed the denial of liability for contributory infringement. As the court explained, initial-interest confusion occurs when a consumer in search of the plaintiff’s product “is lured to the product of a competitor,” citing Australian Gold. The 10^th Circuit explained that initial-interest confusion would have arisen had there been evidence that a consumer who conducts an internet search for 1-800 Contacts and then sees an ad for Lens.com on the results page will be confused into thinking that the plaintiff was the source, or that there was a business association with the plaintiff. However, the data from AdWords showed that initial-interest confusion occurred at most 1.5 percent of the time that a Lens.com ad was generated by one of the challenged keywords over an eight-month period. This was insufficient to support an inference that Lens.com’s keyword activity was likely to lure consumers away from the plaintiff. A survey was also submitted to show actual confusion; however, the survey was excluded on the grounds that methodological flaws undermined its reliability.

Insufficient evidence also plagued the plaintiff’s secondary liability claims with respect to the acts of Lens.com’s affiliates. First, the affiliates use of the “1800Contacts” keywords generated thousands of “impressions” (or display of a sponsored link in response to a search results) that did not display the service mark, and far fewer (approximately 1 percent) resulted in clicks by consumers. Second, there was insufficient evidence of an agency relationship to support vicarious liability for the affiliate’s publication of ads that featured variations of the service mark. Moreover, the affiliate admitted that he never believed Lens.com authorized him to place challenged advertisements.

However, on the issue of contributory infringement the 10th Circuit reversed, finding that a rational juror could find that Lens.com knew at least one of its affiliates was using the mark but did not take reasonable steps to halt that practice. Lens.com argued that it was working with Commission Junction (CJ) (a company that received reimbursements from Lens.com for commissions paid to Lens.com’s affiliates) to identify the culpable affiliate and absent such identification, the requisite knowledge required under Inwood did not exist. The Court disagreed explaining that Lens.com could have communicated with all of its affiliates at once through an email blast from CJ to promptly halt the use.

Trademarks / Default Judgment

Default Judgment Affirmed Against Imposter
Guggenheim Capital, LLC v. Birnbaum
by Rose Whelan

Addressing an appeal from a default judgment against an adjudged trademark infringer, the U.S. Court of Appeals for the Second Circuit upheld the district court’s ruling, finding that the district court exercised proper discretion in granting default judgment against the defendant. Guggenheim Capital, LLC v. Birnbaum, Case No. 11-3276 (2d Cir., July 15, 2013) (Chin, J).

Plaintiffs-Appellees Guggenheim Partners licensee of the Guggenheim marks, and Guggenheim Capital, owner of the Guggenheim marks, (collectively, Guggenheim) are financial services firms affiliated with the well-known Guggenheim family. Defendant-appellant David Birnbaum offered financial services to investors by holding himself out as “David B. Guggenheim” of the “Guggenheim Bank” and claiming an affiliation with the Guggenheim family.

Guggenheim filed a complaint alleging various trademark claims, violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) and various state law claims. The district court issued a Temporary Restraining Order (TRO) and then a preliminary injunction against Birnbaum’s use of “Guggenheim.” Birnbaum failed to file an answer to the remaining claims in the case after winning a motion to dismiss one claim. As the litigation progressed, Birnbaum did not timely respond to discovery requests and eventually responded only with objections invoking his Fifth Amendment privilege and similarly refused to answer deposition questions. Notwithstanding the issuance of a preliminary injunction, Birnbaum also continued to use the Guggenheim name when meeting with potential investors. The district court subsequently granted Guggenheim’s motion for default judgment against Birnbaum, enjoined him from using the Guggenheim name or mark and awarded Guggenheim $1.25 million in statutory damages as well as attorneys’ fees and costs. Birnbaum appealed.

The 2d Circuit concluded that the district court did not abuse its discretion by entering default judgment under Rule 37 regarding the violation of discovery orders. When assessing a district court’s exercise of discretion under Rule 37, the 2d Circuit considers several factors: the willfulness of the non-compliant party; the efficacy of lesser sanctions; the duration of the non-compliance; and whether the non-compliant party had been warned. On appeal, Birnbaum challenged only the “willfulness” and “warnings for non-compliance” findings. The 2d Circuit found no error in the district court’s willfulness findings given Birnbaum’s repeated discovery violations. The 2d Circuit also found Birnbaum had been adequately warned, noting that he had been generally warned of sanctions six different times and moreover did not oppose Guggenheim’s motion for default judgment.

The 2d Circuit also concluded default judgment was proper under Rule 55. Rule 55 allows default judgment where a party fails to plead or otherwise defend an action. In evaluating default judgment under Rule 55, courts must weigh the willfulness of the default, the existence of any meritorious defense and prejudice to the non-defaulting party. The 2d Circuit found no error in the district court’s finding of willfulness citing Birnbaum’s failure to answer the complaint or respond to discovery, as well as Birnbaum’s violation of the preliminary injunction. Additionally, the 2d Circuit rejected Birnbaum’s contention that the district court did not properly consider his fair use defense, which requires a court to consider whether a particular use was other than as a mark, in a descriptive sense and in good faith. The 2d Circuit found that the fair use defense was not meritorious because “Guggenheim” was not Birnbaum’s real name, and in any event, the district court had properly found his use of the Guggenheim name to have been “a bad faith attempt to trade off of the goodwill and reputation of Plaintiffs’ famous marks.”

Note: McDermott Will & Emery represented Guggenheim in this matter. The descriptions and explanations in this case note are of the author’s only and should not be ascribed to or any way limit or affect any position of Guggenheim in this or any other matter.

Technology Licensing / International Arbitration

Who Arbitrates Arbitrability?
Oracle America v. Myriad Group AG
by Cary Chien

Addressing for the first time the question of whether the court or the arbitrator decides arbitrability, a panel of the U.S. Court of Appeals for the Ninth Circuit reversed the denial of a motion to compel arbitration and concluded that incorporation of the UNCITRAL (United Nations Commission on International Trade Law) arbitration rules into a commercial contract constitutes clear and unmistakable evidence that the parties intended to delegate questions of arbitrability to the arbitrator. Oracle America v. Myriad Group AG, Case No. 11-17186 (9th Cir., July 26, 2013) (Christen, J.). This holding represents is an exception to the general rule that the question of arbitrability is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise.

Myriad claimed the right to use Java technology for free, based on Oracle’s Source License. After Oracle sued Myriad for breach of contract, copyright and trademark violations, and unfair competition, Myriad submitted an arbitration demand and moved (in district court) to compel arbitration based on an arbitration clause in the Source License. The district court granted arbitration with respect to the breach of contract claim, but denied arbitration with respect to the intellectual property claims. The district court also enjoined Myriad from proceeding with arbitration of its non-contract claims. The district court reasoned that because the arbitration provision contains a carve out to the effect that the court’s jurisdiction is “exclusive” with respect to a party’s intellectual property claims or claims arising out of the license, the parties intended for the court to decide questions of arbitrability. (Oracle argued that the carve-out was intended to carve out issues relating to its “crown jewel” intellectual property rights to have those issues decided by judges and not arbitrators). Myriad appealed.

The 9th Circuit, reviewing the issue de novo, affirmed, reasoning that Oracle conflated the scope of the intellectual property carve out with the issue of who decides arbitrability. The 9th Circuit concluded that the question of who decides whether Myriad’s failure to pay a royalty for its use of the Java programming language is an issue “arising out of or relating to” the intellectual property rights carve out provision and is a question subject to the arbitration clause. The 9th Circuit explained that the adoption of UNCITRAL rules into commercial contracts (the court expressed no opinion on consumer contracts) evidences that the parties “clearly and unmistakably delegate questions of arbitrability to an arbitrator,” a conclusion consistent with the U.S. Courts of Appeals for the Second Circuit and D.C. Circuit. The 9th Circuit noted that “virtually every circuit to have considered the issue has determined that incorporation of the American Arbitration Association’s (AAA) arbitration rules constitutes clear and unmistakable evidence that the parties agreed to arbitrate arbitrability” and that the AAA rules contain a jurisdictional provision similar to Article 21(1) Article 23(1) of the 1976 and 2010 UNCITRAL rules, respectively.

Practice Note: When drafting carve-out clauses in arbitration provisions in commercial contracts, do not assume that claims relating to the carve-out will be heard in court. If the drafter’s intent is to have claims, particularly claims arising out of important assets such as intellectual property, adjudicated in court rather than by an arbitrator, the arbitration provision should explicitly state that the issue of arbitrability is to be decided by a court.

Copyright / Idea vs. Expression

It’s the Words, Not the Ideas, that Are Copyrightable
Guy Hobbs v. Elton John
by Ulrika Mattsson

The U.S. Court of Appeals for the Seventh Circuit dismissed a lawsuit claiming that Elton John and his songwriter partner Bernie Taupin had plagiarized their hit song “Nikita” from a song called “Natasha,” explaining that copyright law does not cover general ideas, but only the specific expression of an idea. Guy Hobbs v. Elton John, Case No. 12-3652 (7th Cir., July 17, 2013) (Manion, J.).

Guy Hobbs composed “Natasha,” a song about a love story between a British man and a Ukrainian woman. In 1983, Hobbs registered his copyright in the song and then sent the song to several music publishers, one of them being Elton John’s publisher, Big Pig. However, the song was never published. John released the Nikita song in 1985, wherein the singer from the west describes his love for a girl named Nikita, who he saw through the wall and who was on the other side of the line. The copyright in Elton John song was registered with the U.S. Copyright Office by Big Pig.

Hobbs claimed that he first learned of the Nikita song in 2001. He alleged that the lyrics infringed his copyright of Natasha and sought compensation from John and Taupin. Hobbs later sued John, Taupin, and Big Pig for copyright infringement. Hobbs claimed that his work was entitled to copyright protection because his selection and combination of the elements in Natasha constituted a “unique combination.” Hobbs argued that the number of similar elements between the two works supported a claim for copyright infringement.

The district court held that the elements identified by Hobbs were not entitled to copyright protection when considered alone. Hobbs had not established a “substantial similarity” between Natasha, a song about a British man and a Ukrainian woman who did meet, and John’s Nikita song describing an East German woman peering through the Berlin wall at a man she never met. The district court also rejected Hobbs claim that the elements in the song created a unique combination that was copyrightable. The district court held that although the theme of the two songs had some similar elements in common, the elements identified were not protectable under the Copyright Act. Hobbs appealed.

The 7th Circuit agreed, concluding that “Natasha and Nikita simply tell different stories, and are separated by much more than small cosmetic differences.” The 7th Circuit stated that the Copyright Act does not protect general ideas, but only the particular expression of an idea. In addition, the Copyright Act does not protect “incidents, characters or settings which are as a practical matter indispensable, or at least standard, in the treatment of a given topic.” The 7th Circuit concluded that “as a matter of law Natasha and Nikita are not substantially similar because they do not share enough unique features to give rise to a breach of the duty not to copy another’s work.”

Copyright / Compilations

Owner of Compilation Need Not List Individual Authors to Register Copyright
Metropolitan Regional Information Systems, Inc. v. American Home Realty Network, Inc.
by Raymond M. Gabriel

In deciding issues of first impression for the circuit, the U.S. Court of Appeals for the Fourth Circuit upheld a preliminary injunction against a website that used copyright protected photographs assigned to a real estate listing service. Metropolitan Regional Information Systems, Inc. v. American Home Realty Network, Inc., Case Nos. 12-2102, -2342 (4th Cir., May 15, 2013) (Duncan, J) (Gregory, J., and Traxler, J., joining). The Fourth Circuit held that assignee of photographs need not comply with Section 409 of the Copyright Act’s requirement to list the authors of each photograph in order to register a compilation. The Fourth Circuit, relying on the E-Sign Act, also held that an electronic transfer assignment of a copyright satisfies the Copyright Act’s requirement that such transfers be signed and in writing.

The plaintiff-appellee, Metropolitan Regional Information Systems, Inc. (MRIS), is an online real estate listing service. Under MRIS’s terms of service, subscribers upload their real estate listings to an MRS database and agree to assign to MRIS the copyrights in each photograph included in those listings. The subscribers assign their rights through an electronic Terms of Use Agreement (TOU) by clicking on a button. MRIS registers its database quarterly with the Copyright Office under the procedures applicable for automated databases. In doing so, MRIS identifies itself as the author of the database, which includes the compilation of photographs from subscribers. The defendant-appellant, American Home Realty Network, Inc. (AHRN), operates a website that is a national real estate search engine. The website pulls information, including the photographs, from the MRIS database.

MRIS sued AHRN for copyright infringement for unauthorized use of the photographs and moved for a preliminary injunction. The district court granted the preliminary injunction and enjoined AHRN from using MRIS’s photographs. AHRN appealed.

On appeal AHRN challenged MRIS’s registration of its database and the transfer of rights to the photographs from the subscribers. First, AHRN alleged that MRIS’s failed to meet with the requirements of Section 409 of the Copyright Act, which requires that the names of authors for each component in a compilation be included in the registration. The MRIS database is a compilation of photographs that AHRN argued falls within this category. Second, AHRN alleged that the electronic assignment did not meet the signed and written requirements of the Copyright Act for assignments.

In addressing this first issue, the 4th Circuit noted that district courts disagreed on how to apply Section 409 to compilations and their component parts. Some courts barred infringement suits for failure to list each individual author for the components. Other courts allowed infringement actions if the registrant owns the rights to the individual component works. The 4th Circuit adopted the latter approach because for such databases, such as MRIS, that involve large numbers of component works assigned to the registrant, it would be “absurd and inefficient” to list each author.

Turning to the electronic assignment issue, the 4th Circuit relied on the E-Sign Act, which mandates that no signature be denied legal effect simple because it is electronic form. The E-Sign Act allows button clicks to act an electronic signature. Moreover, the court noted that agreements to transfer exclusive rights to copyrights are not included in the exceptions to the E-Sign Act.

Practice Note: The 4th Circuit’s decision in this case highlights how technological advances and e-commerce can effect federal regulations. As technology makes it easier to make mass compilations of works and assignments, the Copyright Office must catch up to those advances. Indeed, the 4th Circuit noted that the Copyright Office also disagreed with cases requiring the identification of each author in a compilation where the registrant is the assignee of the copyright. This case will make it easier for database compilers to register their works and protect their rights.

Copyright / Preliminary Injunctions

No Preliminary Injunction Over Commercial Hopping
Fox Broadcasting Co. v. Dish Network L.L.C.
by Bryan James

The U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s denial of a request for a preliminary injunction sought by a broadcaster in a copyright infringement and breach of contract lawsuit against Dish Network over its ad-skipping (Hopper) product. Fox Broadcasting Co. v. Dish Network L.L.C., Case No. 12-57048 (9th Cir. July 24, 2013) (Thomas, J.). The Ninth Circuit agreed with the district court that the broadcaster/plaintiff, Fox, was not likely to succeed with its copyright infringement claims, and that while there was a likelihood of success in one breach of contract claim, the harm was not irreparable.

In January 2012, Dish began marketing to its customers a set-top digital recording device, “the Hopper,” which provided DVR and video-on-demand capabilities. Dish also offered a feature called “PrimeTime Anytime” (PTAT) which, when enabled by a subscriber, recorded on the Hopper all primetime programming on any of the four major broadcast networks, including Fox. Dish determined the start and end times for PTAT, and the programs were stored locally on the Hopper. In May 2012, Dish began offering “Auto-Hop,” a feature that allowed subscribers to automatically skip over commercials in the recorded PTAT programming.

Fox sued Dish for direct and derivative copyright infringement, as well as for breach of contract. The 9th Circuit held that the district court did not abuse its discretion in holding that Fox was unlikely to succeed on its direct infringement claim. Although Dish controls the start and end times of the primetime block, decides how long the copies are available on the Hopper, and blocks a user from stopping a recording once started, the user must enable the feature. The 9th Circuit affirmed the district court’s reasoning that the user, and not Dish, is “the most significant and important cause” of copying Fox’s content through the PTAT feature.

With regard to derivative infringement, the 9^th Circuit held that Fox was unlikely to succeed in establishing the necessary predicate claim of direct infringement against the PTAT users. Following the Supreme Court’s seminal decision in Sony Corp. of America v. Universal City Studios, Inc., the 9th Circuit found that subscribers used the Hopper for time-shifting purposes, a fair use, and therefore were not liable for direct infringement. Further, the circuit court held that Auto-Hop does not implicate Fox’s copyright interests, because Fox owns copyrights to the programs, not the skipped advertisements. Accordingly, the 9th Circuit agreed with the district court that Fox was unlikely to prove derivative infringement against Dish.

Under a deferential standard of review, the 9th Circuit also held that the district court had not erred in denying an injunction based upon the breach of contract claims. While Fox was likely to succeed on at least one of the claims, the harm was not irreparable, and therefore did not warrant preliminary injunction relief.

Practice Note: Fox has petitioned the 9th Circuit for rehearing and en banc review.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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